Safer sourcing

Tuesday, June 25, 2013

Global shippers try to influence end to hazardous sweatshops in Bangladesh.

By Jon Ross

On April 24, more than 1,000 workers sewing T-shirts, shorts and other clothing in a Bangladesh garment factory died when the building suddenly collapsed. In November, a fire at another factory in the region killed 112 people.
Facing these devastating stories at the first cog in the fashion supply chain, consumers, governments and industry shareholders have started working toward solving the issues at the heart of these types of tragic events.
In the aftermath of the April collapse, government regulators in Bangladesh shut down three factories of a major garment exporter due to safety violations, according to media reports. Officials also temporarily closed 18 factories pending safety improvements in the midst of a governmental review of the 5,000 garment factories in the region.
Last month, the U.S. Department of Labor announced a $2.5 million grant to fund training programs to improve fire and building safety in the region. According to the department, the Bangladesh government has recently been striving to address these concerns, and the United States, as one of the region’s top import targets, saw the need to step in to help.
The grant money, according to a release, will “strengthen the Bangladesh government’s ability to improve its enforcement of fire and building safety standards and build the capacity of worker organizations to effectively monitor violations of fire and building safety standards and abate related hazards in the ready-made garment sector.”
While the trend toward compliance and sustainability among global suppliers had already taken root long before these recent incidents, the Bangladesh factory building collapse has made the issue more pressing. That event, which received a large amount of global media coverage, once again thrust the topic of social responsibility in the supply chain to the foreground. The trend, driven by both consumers and regulators, may cost shippers a larger portion of investment upfront, but later save them from being embroiled in the latest news story.
In addition to governmental changes — stricter safety regulations and better wages for workers — members of the supply chain have banded together to call for a change to current practices. The Interfaith Center on Corporate Responsibility, a group representing 200 organizations, has called for industry leaders to step up reforms quickly to address problems in the area. The group charges that making a change is as much about shifting the meaning of the supply chain as bringing actual reforms to Bangladesh.
“The current model, which assures global customers will have a ready supply of inexpensive and up-to-the-minute fashion, incentivizes corruption and lax oversight as low-cost producing nations compete in a race to the bottom for garment manufacturing contracts,” the group said in a statement.
The group has asked for companies operating in Bangladesh to join the Accord on Fire and Building Safety, commit to finding a living wage for workers, disclose all their suppliers to customers, and help air worker grievances.
These demands are all part of the supply chain compliance issue, which has been in the forefront of the industry for at least a decade. Mattias Praetorius, Panalpina’s global head of the fashion vertical, has seen the movement toward this type of compliance coming for a long time. He was surprised at the amount of discussion and lack of simple action seen historically in the industry.
“The market, as such, is quite aware of this, the question of course raised by journalists and society is, why is this still happening?” he said of the issue. He noted Panalpina prides itself on compliance at every corner of its company and won’t work in countries or with manufacturers who don’t support a basic level of supply chain responsibility.
Proper compliance and supply chain accountability, as Praetorius sees it, makes sure that wages for workers are at a certain level and security is present, as needed, in factories. “We have a joint responsibility as an industry to even work harder on our compliance programs and make sure that measures are taken to prevent the kind of situations that came up (in Bangladesh),” he said.
To get around the added costs of these programs and the impact of increased employee wages, shippers should take a look at their supply chains to cut out the fat. Praetorius preached visibility and vendor management as two major aspects of streamlining the supply chain, something Panalpina strives to do for its customers. In fact, the company recently joined with the Supply Chain Council to further help customers with their supply chain issues.
Vendor management also involves training vendors to identify safe, sustainable processes. Consolidation may also be a factor.
“Do you really need to source from that area? Do you need origin warehouses here, do you need destination warehouses there?” Praetorius asked. “These are the kinds of costs we can take out from their supply chain to improve visibility.”
The sub-par conditions in the Bangladesh garment industry haven’t scared shippers away, yet. The industry isn’t leaving Bangladesh and looking for a new home. In fact, Praetorius pointed out some industry watchers have said it would devastate the country’s economy if the industry pulled out altogether. The people of Bangladesh are highly dependent on the textile industry, and it would be disastrous if manufacturers left the area.
“Long term, I see other sourcing patterns, but I think Bangladesh will still be one of those places from which you source, and I think you will see more quality in Bangladesh in terms of security and so on because of the media reaction,” he said.
Some of these other sourcing patterns might involve South Africa, which has seen an increase in exports to Asia.
Sourcing ties directly into origin regulations being pursued by governments. Godfried Smit of the European Shippers Council has heard of plans to begin a labeling directive in Europe to give consumers an idea of the sourcing that goes into each product.
“Until now, this directive has not come into existence because of the problem of the added value for consumers of such a label,” he said, noting there are ties between this movement and the one toward origin labeling of food products due to health concerns. “For agricultural product, you must be able to track the milk to the cow and the steak to the cow,” Smit said.
But the recent Bangladesh incidents may ultimately prod the European government into regulatory action, he said. This will all cost shippers more money, but Smit sees shippers’ ability to compete fairly even with these new expenses.
“There will be markets especially based on quality, sustainability and fair production. Next to this, some shippers will try to compete on price,” he said.
Information exchange will also be paramount moving forward to keep better track of sourcing, give governmental bodies what they require in terms of data, and hand consumers exactly what they want.
“Data in the supply chain and the exchange of data will get more important. Traders will have to get used to exchanging more data than today amongst themselves and to governmental agencies,” Smit said. “Automation and the creation of single windows at borders will facilitate this movement.”
Of course, shippers who flout or otherwise try to get around these origin rules, once they become law, take a major risk. According to Smit, shippers could be made to hand over duties and fees up to five years after the fact.
“That means you have to pay whilst you have already delivered the goods to your client for a too low client value. You cannot return to your customer to recover this duty,” he said. “So, in many cases where the customs duties are quite low, shippers are inclined not to use preferential origin because of the risk.”
Ultimately, the movement toward more ethical, sustainable manufacturing leads to more cost for the consumer. As shoppers demand to know how their T-shirts were made, where the materials were sourced, and how they were shipped to the store, they must be prepared to pay more. That’s still a ways off, Smit said. The market for this level of product has not yet formed.
“I don’t think we as a society are there yet. We talk about it, we implement compliance programs, which is very good, but at the same time, the consumers are not yet at that stage where they buy products produced at a higher price because cost awareness is still out there,” he said.
Again, Panalpina’s Praetorius returns to Asia, as a number of consumers there are demanding higher-quality, sourced goods. These are now being produced ethically, and since there is a demand for the products, the added cost doesn’t affect the supply chain that much. But lower cost goods, for which there will always be a market, is a problem for which there is no easy solution.
“There will, unfortunately, be a big difference,” he said regarding global sourcing in the future. “There will be cheap sourcing, and there will be expensive sourcing. The difference between those will be larger.
“There will never be an end to demand for medium-priced retail sourcing,” he said. “That will always exist.”